Credit Card & Debit Solutions

After you've made the decision to pay off your debt, you must choose between several different options. No one solution works for everyone. Your choice will depend on your financial situation and the severity of your debt. However, with each plan it's vital to make a firm commitment to pay off all the debt and keep it paid off to avoid falling back into debt later.

Snowball Plan

One solution for paying off debt is to pay off your smallest balance first in what is called the snowball plan. Some financial experts recommend the snowball plan based on the idea that once you see your debts shrinking, you'll be more encouraged to continue paying down the rest of your debt. You will see the effects of your efforts fastest on the smallest debt. Once you pay off the smallest debt, continue to the next smallest debt and so on, until all your debt is paid off.

Highest Interest First

Other financial experts recommend paying off the credit card with the highest interest rate first. Interest is expensive, and the longer it sits and accumulates, the more you're paying toward your debt. Therefore, it makes sense financially to get rid of those debts with with the highest interest first so you're paying the least amount of interest overall by the time you get to the card with the lowest interest.

Consolidation Loan

Consolidation loans wipe out your debts so you make one monthly payment rather than multiple payments to different accounts. Those who have trouble keeping track of payment due dates may benefit from a consolidation loan; however, they may be risky. Although consolidation loans are often advertised with very low interest rates, those rates are generally reserved for those with extremely good credit. According to Bankrate, 70 percent of those who take on consolidation loans end up with the same amount or more debt within two years. Therefore, you must be fully committed to keeping your debt paid off if you take on a consolidation loan.

Debt Management Plan

For those who have had problems paying their debt, a credit counselor may recommend a debt management plan (DMP). Under a DMP, your credit counselor will negotiate with your creditors for lower interest rates or pay off balances. The counselor will then set up a payment plan through which you will pay off your debt over a set period of time. Be aware that you may have difficulty obtaining new credit down the road because creditors will view your DMP as an indicator that you have had problems paying the full amount of previous loans.